| 923664 | |
| A. Humenuk | |
| (613) 957-2134 |
December 18, 1992
Lucy Allaire, DirectorPersonal and GeneralPolicy and Planning Directorate SectionHuman Resources BranchRoom 404, 123 Slater Street
Attention: Maureen Powell
Office in Home Expenses for Employees
We are writing to you in respect of the employment expenses which may be incurred by Departmental employees who are working from their homes and questions that may be addressed to your Branch in this regard.
The Employment Expenses Guide describes generally the circumstances under which an employee can claim expenses incurred in carrying out the duties of employment. Interpretation Bulletin IT-352R, "Employees' Expenses Incurred in Performing Duties of Office or Employment", provides more detailed information on the conditions necessary in order for an employee to deduct any expenses incurred in maintaining an office at home. This bulletin is in the process of being updated to reflect an additional requirement imposed by new subsection 8(13) of the Income Tax Act (the Act) and thus does not provide all the information necessary to determine the amount of deduction available to an employee in a particular year. We have enclosed copies of the relevant publications.
In order to assist you in responding to the questions which may be asked of you on this issue we have summarized the significant requirements which must be met in order for an employee to deduct the cost of maintaining an office in the home, specifically as it relates to Departmental employees. Accordingly, we have made the assumption that the employees in question would not be remunerated in whole or part by commission and that the expenses to be deducted will be less than the income earned.
The most common categories of expenses relating to an office in the home which a Departmental employee might seek to deduct are "rent" and "supplies consumed directly in the performance of the duties of his office or employment". It is our understanding that Departmental employees working at home would not be required to provide any supplies other than basic office space. Consequently, our comments concerning supplies are limited to those supplies which relate directly to the maintenance of office space within the employee's home and not to items such as pens and paper.
The following conditions must be met in order for an employee to deduct the applicable expenses:
1. The employee must be required by the contract of employment to provide the space and to pay for the related expenses. Generally speaking, one would expect to find these requirements expressly stated in the written contract of employment signed by both the employee and the employer. As stated in paragraph 1 of Interpretation Bulletin IT-352R however, the Department accepts that such a requirement exists where it can be established that it was tacitly understood by both employer and employee that the conditions of employment did in fact require the employee to provide such space and pay for the related expenses in order to fulfil the duties of employment.
2. The employer must provide a certification on form T2200 (a sample copy is found in the centre of the Employment Expense Guide) that the appropriate conditions were met in respect of that employee. In the event of a review of that employee's income tax return, the officer signing on behalf of the employer may be contacted for further verification.
3. The employee must principally perform the employment duties at the office in the home (or such an office must be used exclusively for employment purposes and regularly used for meeting customers or other persons in carrying out the employment duties). For most employees this means that they would not be entitled to any deduction in respect of the costs associated with their residence unless they spent more than half of their time working at home regardless of the nature of their contract.
4. An employee will only be allowed to deduct a particular expense if it has been paid for in the year and fits within a specific provision of the Act which permits such expenses. Consequently, employees cannot deduct the cost of any additional insurance, mortgage interest, taxes or depreciation that may be required or incurred as a result of working at home. An employee who is eligible to deduct expenses and owns his or her home would be limited to the relevant percentage of the utilities paid for that home whereas an employee living in rental accommodation would be entitled to a deduction for a proportionate amount of both the rent and utilities paid in respect of the employee's living accommodation. Note as well that an employee who owns his or her own home cannot deduct the equivalent rental value of the portion of the premises used for the office.
We hope these comments will be of assistance to you. If you have any further questions in this regard, you may wish to contact Annemarie Humenuk who can be reached at 957-2134. If employees need further information, they should contact their local district taxation office.
B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch